Why is the world moving from fixed price to a subscription-based pricing model? Does this shift benefit customers or the companies?

Think back to when you purchased your last car. If you were fortunate to have sufficient funds to buy it outright, then you may have done so, but you more than likely purchased it over a fixed term – perhaps 36 months – paying a fixed amount each month. At the end of that term, the car was yours. But you knew that the car you bought in year one, and the car you finally owned after three years, were the same car, with the same features at the end as you had at the start. No shiny new CD player or DAB radio, probably neon or xenon headlights instead of the more modern and brighter LED equivalents; possibly no central locking, etc. You knew that at the time, and were happy with that arrangement.

Until a few years ago, buying software was the same. You’d stump up a few hundred notes for Office 2007, then after three years, you’d be hungry for new features and you’d buy Office 2010, then 2013, then 2016, etc. Purchase, use a static feature set, upgrade. Rinse and repeat. Some people would skip a release to prolong their investment.

Financially, that didn’t make sense, either for the software vendor – Microsoft, in this example – or for you, the consumer. If you held out before upgrading the next release then yes, you saved money, but you knew you were on borrowed time and you knew you were missing out on shiny new features – often emphasized when somebody emailed you a file that you couldn’t open! But if you upgraded earlier than necessary then you risked overpaying, since you’d perhaps only had two years’ life out of your previous version.

Things changed, driven by the vendor and the consumer. Rather than pay up-front for software, vendors allowed consumers to pay a small amount each month. The benefit for the vendor is clear – steady income – and the benefit for the consumer is not having to fork out so much cash in one go. The downside though, is when you stop paying the money, the software stops working. But like with the car, you know this when you sign up, and provided you’re happy to play by the rules, it’s usually worthwhile. If you were one of those people who upgraded with each release – Office 2010, Office 2013, etc. – then you end up paying roughly the same amount overall, but if you were one of those people who skipped a release, then the monthly option was much more costly.

There is also another key advantage here though, and that is continued improvement. In return for you paying a monthly fee, the vendor will give you a steady drip-feed of enhancements. New features, new capabilities, new bells and whistles.

Think back to why you upgraded your Office versions; it was usually to take advantage of new features. So, with these features now being delivered on a monthly basis, it requires a mindset-change to embrace these new features in a much more timely manner than you were perhaps used to doing. Previously, you’d announce that you were adopting Office 20xx and you’d list all the new features, and you’d embrace them gradually. With the continual delivery approach, being an early adopter brings three key advantages: you leverage your investment (subscription) effectively, you get up to speed on new features ahead of your peers or competitors, and you get the chance to shape the product. Often, the first release of a feature is limited in capability, but vendors do this deliberately, to dip their toes in the water and gauge adoption. A bit like using the consumers as a steerco without telling them as much. If you adopt a feature early, vendors will soon understand what people like and don’t like about the feature, and their subsequent releases will usually take this feedback into account.

Everything written above has used Office as an example, but only because the release history is easy to relate to. The same concept has been true of Windows versions, and of course the same approach now applies to hundreds of other solutions out there, from almost all vendors. Microsoft’s Dynamics platform, for example, follows the same approach. The Customer Engagement platform has two sizeable releases every year, but every few weeks there are tiny, incremental enhancements. The Finance and Operations platform has eight sizeable releases each year. Again, enhancements released by the vendor are of no use if you, the consumer, don’t embrace them and start working with them at the earliest opportunity. After all, you’re paying a monthly fee for the software, so why not start to use the features as they arrive. Of course, it makes sense to tread carefully, and fully understand what a new feature can and cannot do before you deploy it to production, but you should at least kick the tyres on it, and understand what advantages it might bring to your organization. After all, if you’re not going to use the features, then you’re back to your car scenario, with no electric windows and no CD player, and that’s not really capitalizing on the money you’re spending each month.

Embrace the changes, change your mindset, and get on board the train that brings you new features in return for your monthly fee. Standing still doesn’t win accolades for any organization.

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